Graham & Doddsville Newsletter: Interview With Li Lu (Columbia Business School)

Columbia Business School is out with its Graham & Doddsville investment newsletter for Spring 2013.  It features an interview with Li Lu of Himalaya Capital, a man who was dubbed one of Charlie Munger's favorite investment managers.

This interview is really fantastic as he touches on investment process a lot so we'd recommend reading the whole thing below.  But for those pressed for time, here are the takeaways:


Highlights From Li Lu's Interview

On value investing: "There are few people that switch in between or get it gradually.  They either get it right away or they don't get it at all.  I never really tried anything else.  The first time I heard it, it just made sense; and I heard it from the best."

On defining yourself as an investor:  Lu also touched on how you still have to find your own style of investing that matches your personality.  He says, "The game of investing is a process of discovering: who you are, what you're interested in, what you're good at, what you love to do, then magnifying that until you gain a sizable edge over all the other people."  He also added that, "The only way to gain an edge is through long and hard work."

On why he doesn't short anymore:  He listed 3 reasons:  "Three things about shorting make it a miserable business. On the long side, you have 100% downside but unlimited upside. On the short side, you have 100% upside and unlimited down-side. I do not like that math. Second, the best short has some element of fraud. However, a fraud can be perpetrated for a longtime. Of course you borrow to short, so they could really just wear you down. That’s why I could be 100% right and bankrupt at the same time. But, you know what, you go bankrupt first! Lastly, it screws up your mind. Shorts just grab your mind and take away from the concentrated effort that is required to do proper long investing."

On how he finds ideas: "Ideas come to me from all sources, principally from reading and talking."  What's interesting is he doesn't really talk to other investors that much.  He's more keen on chatting with people running businesses.

On the importance of management teams: "(They) always have a big influence on your success, no matter how good or how bad the business is itself.  Management is always part of the equation of making the company successful, so the quality of management always matters.  But to assess that quality is not always easy."

On decision making:  "I think you want to avoid wrong decisions as much or more than you want to get it approximately right.  If you avoid the wrong decisions, you'll probably come out okay over time."


The issue also features pitches from Columbia Business School MBA students on: Motors Liquidation Company (MTLQU), Precision Castparts (PCP), Hertz (HTZ), Advance Auto Parts (AAP), Dollar Tree (DLTR), Stanley Black & Decker (SWK), & Yum Brands (YUM).

Embedded below is the Spring 2013 Graham & Doddsville issue:




You can download a .pdf copy here.

Jeff Saut: Putting Money to Work in Stocks, But Correction Not Over

Market strategist Jeff Saut is out with his latest commentary and begins with a focus on oil. Unrest in the Middle East has caused prices of black gold to surge from $84 to over $100 per barrel and this is worth keeping an eye on. Turning to his latest stance on the stock market, he thinks the correction is not yet over, even after last week's sell-off.

He writes,

"The recent stock 'high' was accompanied by the most bullish stock sentiment since the DJIA's peak in October 2007 (69% 'Bulls' according to Market Vane); as well, the Volatility Index (VIX/19.22) recorded its lowest reading since the summer of 2007 (read: too much complacency). Ladies and gentlemen, it is rare to see those kind of extreme readings worked off in a mere three sessions. So yeah, I believe the correction has more to run, yet I continue to think it is a mistake to become too bearish."

As such, Saut has gradually begin to put money to work in stocks during the pullback. He sees the intermediate trend as up and thinks you should buy stocks on your watch-list during further sell-offs.

He points to his own watch list and highlights some of the stocks that have held up best like Skyworks Solutions (SWKS), Stanley Black & Decker (SWK), Tempur Pedic (TPX), and Williams Companies (WMB). For the investment thesis on WMB and to see why hedge funds have been buying, we featured the stock in the equity analysis section of the new issue of our Hedge Fund Wisdom newsletter that was just released.

Embedded below is the latest investment strategy from Jeff Saut:



You can download a .pdf copy here.

Analysts' Best Stock Picks For 2011

Raymond James is out with its Analysts Best Picks for 2011 report. We highlighted their picks from 2010 and those performed pretty well with a 22.3% return. In fact, their annual selections have a 10 year average return of 12.4%.

The report details analysis of the fundamentals, growth prospects and risks associated with each stock. They've selected 13 stocks again this year and in alphabetical order, here are the Analysts' Best Stock Picks for 2011:

- Allscripts Healthcare (MDRX)
- Bank of America (BAC)
- CONSOL Energy (CNX)
- Covidien (COV)
- Digital Realty Trust (DLR)
- Equinix (EQIX)
- Halliburton (HAL)
- HealthSouth (HLS)
- Lincoln National (LNC)
- NVIDIA (NVDA)
- Panera Bread (PNRA)
- Pioneer Natural Resources (PXD)
- Stanley Black & Decker (SWK)

There are some pretty familiar names in that bunch and a few prevalent themes. They've included multiple plays in the health space with MDRX, HLS, and COV. Also, technology is represented with two names in NVDA and EQIX. Also, energy/natural resources are abundant via PXD, CNX and HAL. We wanted to highlight a few of their selections below:

Bank of America (BAC): This name is interesting because it was also on the analysts' best picks list for 2010. However, over the course of last year the stock declined. Raymond James sees the price depreciation as further opportunity and is again a buyer of shares this year. Not to mention, some of the largest hedge funds in the game have sizable stakes in BAC, including John Paulson.

Halliburton (HAL): Arguably, the time to buy this name was during the Gulf oil spill when uncertainty abounded and the stock price was depressed. Yet, RJ feels the company will see near-term earnings momentum and a rebound in international activity. We've talked about how hedge funds are betting on higher oil prices as well.

Equinix (EQIX): This tech name is intriguing because it saw some volatility last year. And as we detailed in our Hedge Fund Wisdom newsletter months ago, a large shareholder (Shumway Capital) was reducing its position size and could be partially responsible for the volatility. Raymond James likes the company's dominant market position in the colocation market and data center industry.


Keep in mind that obviously with the market rally, a lot of these names have been bid up significantly already. Some strategists would obviously advocate waiting to purchase some of these names given that they're extended and knowing that the market doesn't go straight up forever. RJ's Chief Investment Strategist Jeff Saut expects a buyable pullback.

Embedded below is the full research on Analysts' Best Picks for 2011:



You can download a .pdf copy here.

For further research from this shop, head to the previous best stock picks for 2010 as well as Jeff Saut's risk management principles.

Jeff Saut Expects Near-Term Pullback, Sees It As Buying Opportunity

It's been a while since we checked in on Jeff Saut, Chief Investment Strategist at Raymond James, so let's dive into his latest market commentary. Over the past few weeks, Saut has started to advocate a neutral/cautionary stance, pointing to various near-term overbought signals in the market. Saut now feels that stocks are "searching for some kind of trading peak between now and the FOMC meeting."

The market strategist believes that the Fed will announce quantitative easing round two and that the Republicans will take back the House. While these should be stock-market friendly events, he feels that they could already be discounted. That said, Saut also highlights that portfolio manager anxiety could possibly build amongst those who are materially underweight equities. If stocks were to take off, there would seemingly be a wave of new money behind it as performance anxiety sets in.

On any upcoming pullback, Saut presents the following list of stocks to look into as they've recently beaten earnings estimates and guided higher for the next quarter: Polaris Industries (PII), Select Comfort (SCSS), Stanley Black & Decker (SWK), Tempur-Pedic (TPX), Chubb (CB), UnitedHealth Group (UNH), and Altera (ALTR), the last of which was named as an analyst best pick for 2010 and is up over 33% year-to-date.

Specific sectors that tickle Saut's fancy include technology and energy. At the Value Investing Congress, Lee Ainslie of Maverick Capital said technology stocks are cheap. Overall though, Saut is cautious in the near-term as he points many technical indicators signaling a near-term top. While he feels a dip will occur in the next few weeks, he thinks it is a buying opportunity.

Lastly, the market strategist offers bank loans as an enticing place to park some cash as per recommendations from numerous respected portfolio managers. At the Value Investing Congress, Harch Capital's Michael Lewitt also advocated bank loans as an attractive investment. Saut offers the Pioneer Floating Rate Fund (FLYRX) and the Mainstay Floating Rate Fund (MXFAX) as ways to play this.

Embedded below is the latest market commentary and investment strategy from Jeff Saut:



You can download a .pdf copy here.

For more insight from the strategist, head to Saut's risk management principles as well as his outline of the businessman's risk portfolio.